Canadian dollar falls to lowest in 3 years on rate-cut wagers

Bank of Canada policy makers kept the benchmark rate on overnight loans between commercial banks at 1%, where it’s been for more than three years, as expected by all 22 economists in a Bloomberg News survey.

“The risks associated with elevated household imbalances have not materially changed, while the downside risks to inflation appear to be greater,” Poloz said in the statement, which didn’t mention the recent depreciation of the loonie.

The decision was Poloz’s first since he surprised investors in October by dropping language about the need to raise interest rates in the future. The world’s 11th largest economy won’t reach full capacity until around the end of 2015, the central bank forecasts, with Poloz counting on gains in investment and exports to drive growth, instead of debt-laden consumers.

Central Banks

“Their concerns are to the downside right now, rather than thinking about when they’re going to hike rates,” David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, said by phone from Toronto. “You get the contrast with the Federal Reserve talking about tapering, the Bank of Canada still cautious and having shifted to park rather than neutral.”

The loonie fell earlier as companies in the U.S. boosted payrolls by 215,000 in November, according to figures from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a 170,000 advance. Official U.S. jobs data for November will be released Friday.

The U.S. dollar rose against most of its major peers after the news, as speculation increased the Fed will act to curb its $85 billion in monthly bond purchases as soon as its next meeting, Dec. 17-18.

“The Fed is seen scaling back policies before too long -- that contrasts with expectations that it’ll be a year or more before we see rate rise from Canada,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “The weakness we’ve seen in the Canadian dollar reflects the divergent view.”

The Canadian dollar has declined 1% in the past week against nine developed market currencies tracked by the Bloomberg Correlation-Weighted Index, the biggest decline on the index. The Swedish krone has seen the largest increase at 1.2%, while the greenback is down 0.1%.